Not many IT companies have gone to a town like Shimoga, which has a population of about 1.7 million and is the rice bowl of the state.

In an attempt to keep a lid on costs and employee attrition, London-based outsourcing company Xchanging Plc., which has 30% of its staff in India, is experimenting with locating some of its business in the hinterland. Or, at the very least, a six hour drive from the nearest airport. That’s enough to ensure that real estate is cheap, as is the work force. And best of all, it’s far enough to deter the competition from coming in and swooping up trained staff, the company says.

Xchanging, which had revenues of $1.2 billion in 2010, the latest available figures, has about 3,400 employees in India across 13 centers. Of these, two centers are in Shimoga in Karnataka and a recent addition is in Solan in Himachal Pradesh. The Shimoga centers, which started as an experiment five years ago, employ 500 people. Three months ago, the company started its center in Solan. It thought it would maybe hire 30 people there. So far it has 100 employees already and now expects to double that.

Alok Sinha, president and head of its IT outsourcing division, says the experiment to take work outside Bangalore was driven primarily by an attempt to curtail escalating costs. Real estate prices have increased 15%, wages, on average, have shot up by up to 12% while the amounts billed to clients have gone up only 3-4%, says Mr. Sinha.

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“We needed a buffer to the attritions,” he says.

“It’s a brilliant idea,” says Bhavin Shah, IT analyst at Equirus Securities. “They will face some challenges in recruiting, but if they can overcome those, it will work very well.”

This of course, is not the first time IT companies have ventured out of Bangalore. But so far most efforts have been restricted to fairly large cities like Jaipur, Pune, Indore and Mysore. None of the companies have gone to a town like Shimoga, which has a population of about 1.7 million and is the rice bowl of the state.

“It’s an evolution of the industry,” says Mr. Shah. “If Tata can be in Jamshedpur, any IT, BPO company can be in a small city as well.”

Over a period of time, Xchanging says it realized that hiring people from small towns and transplanting them to big cities like Bangalore and Mumbai had its downsides. Often, these employees would feel lonely and would have a tough time adjusting to big city norms and would eventually go back to their home towns.

So it decided to take the jobs to those home towns instead, assuming they met its criteria. In order to limit the amount of training, the company said that if it could work with colleges, it could have them adopt curricula that matched its requirements. This would also save it time and money spent on training new hires.

When it set out, it had in mind a couple of criteria—the town should be a college town so there would be a pool of potential employees to recruit from, and it should be at least a six hour drive from the nearest airport, a distance, it surmised, that was far enough to discourage any competition.

When it ventured into Shimoga, it hired a retired, highly respected teacher to be its local council. It also sponsored sports and fashion events in the local colleges to advertise itself.

In Shimoga, Xchanging has taken over the local wedding hall as there were no office buildings that were large enough to house all its employees. It has since bought up six acres of land and set up an IT campus. It even hosts a monthly happy hour—which later turns into a discotheque—to update employees on developments in the company globally.

Xchanging says it ventured into Solan to see if it could replicate in the north its success in the south. The town has nearly a dozen colleges and graduates 5,000 engineering and MBA graduates each year.

“We had to work really hard there,” says Himanshu Bhardwaj, head of service at Xchanging.

The company did a presentation on itself at a local club to club members, the university vice chancellor, the club secretary, amongst others. “We were potentially going to hire their children,” so it had to first make a pitch first to the parents, says Mr. Bhardwaj.

It also put up the pictures of the first set of hires on a big banner across the highway. “You need to make people successful,” says Mr. Sinha. “Once you do that, it’s easier to recruit the next time.”

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